Position Sizing: Marrying The Best of Qualitative & Quantitative Decision-Making

5 January 2021 | by Sean Stannard-Stockton, CFA

At Ensemble Capital, we believe that company analysis is a qualitative activity. The identification of competitively advantaged businesses, with excellent management teams, and long term growth paths is fundamentally a qualitative process. But we also believe that humans are generally terrible at deciding exactly when to buy or sell a stock and specifically how much to own.

To counter act the cognitive biases that lead human traders astray, we developed a quantitative position sizing framework that transforms our qualitative assessments into specific quantitatively derived position sizes. We believe that this approach, assigning humans the qualitative analysis at which they thrive, while assigning quantitative trading decisions to an algorithm, is a direction that many equity managers will pursue in the years ahead.

In 2019, we published a series of blog posts on our position sizing philosophy. Today we’re publishing an illustrated report focused on the details of our process.

You can download the report by clicking here.

While we do not accept public comments on this blog for compliance reasons, we encourage readers to contact us with their thoughts.

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